The banking sector in Ghana has demonstrated remarkable resilience, with year-on-year total assets surging by 16.7% to GH¢257.89 billion, fueled by a substantial growth in deposits, which reached GH¢199.94 billion from GH¢172.09 billion, marking a robust 26.6% increase.
The commendable performance comes against a backdrop of challenges, as outlined by Bank of Ghana Governor Ernest Addison. According to the BoG governor, the recapitalization efforts in 2018/19 and the subsequent clean-up from 2017 to 2019 were strategic moves to fortify the sector, allowing it to withstand external shocks, such as those experienced in 2020 and 2022.
Governor Addison noted that the 2022 audited financial statements of banks, following the Domestic Debt Exchange Programme (DDEP), revealed significant impairments in capital levels, primarily attributed to substantial holdings of assets in Government of Ghana (GoG) bonds. He explained that the mark-to-market valuation losses post-DDEP, coupled with higher loan impairments and rising operating costs, resulted in substantial losses in 2022.
Despite these challenges, Governor Addison emphasized that the banking industry’s profitability indicators, namely return-on-assets and return-on-equity, turned negative due to the industry’s loss position. However, he underscored that the earlier reforms and recapitalization efforts had positioned the sector to weather such shocks more effectively.
To mitigate the impact and maintain financial stability, the central bank provided temporary regulatory reliefs for banks and SDIs (Specialized Deposit-Taking Institutions) participating in the DDEP. These reliefs aimed to cushion the effects of the DDEP, with an expectation for the institutions to fully restore capital gaps caused by the program proportionally over the next three years, ending on December 31, 2025.
Regulatory Reliefs
Governor Addison emphasised that, in addition to regulatory reliefs, the Government of Ghana has published an operational framework for eligible banks to access recapitalization support from the Ghana Financial Stability Fund. This multi-pronged approach seeks to ensure the sector’s stability while facilitating recovery from the impact of the DDEP.
Despite the losses incurred in 2022, the banking sector has displayed relative stability in the year to October 2023. Profitability has remained robust, driven by higher interest income on loans and investments, along with other income sources. The industry’s profit-after-tax reached GH¢7.10 billion, marking a substantial 60.4% annual growth.
While the Capital Adequacy Ratio, adjusted for regulatory reliefs, stood at a healthy 13.4% in October 2023, surpassing the revised prudential minimum of 10%, there has been a noticeable increase in the industry’s non-performing loan ratio. Rising to 18.3% in October 2023 from 14.0% in October 2022, the uptick is attributed to elevated credit risk associated with the lagged effect of the macroeconomic crisis in 2022.
Looking ahead, the Ghanaian banking sector faces the dual challenge of maintaining its current resilience while adapting to evolving economic conditions. The focus on restoring capital gaps and addressing non-performing loans underscores the sector’s commitment to financial stability. The measures implemented by the central bank and the government demonstrate a proactive stance in supporting institutions as they navigate the aftermath of the Domestic Debt Exchange Programme.
As the industry continues to grapple with macroeconomic uncertainties, the emphasis on responsible banking practices and strategic interventions will be pivotal in sustaining the sector’s positive trajectory. The collaborative efforts between regulatory bodies, financial institutions, and the government underscore a collective commitment to ensuring a robust and resilient banking sector that can withstand future shocks and contribute to Ghana’s overall economic health.
In all, the Ghanaian banking sector’s resilience amid challenges is evident in its robust asset growth, soaring profits, and proactive measures to navigate and recover from adverse economic events. The ongoing commitment to prudential standards and regulatory frameworks positions the sector for sustained stability and future growth.
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